CORK INSTITUTE OF TECHNOLOGY
INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ
Semester 1 (WINTER 2012) Examinations 2012/2013
Module Title: Introduction to Microeconomics
Module Code:
ECON6003
School:
Business
Programme Title:
Bachelor of Business and Higher Certificate in Business
Programme Code:
BACCT_7_Y1, BACCT_8_Y1, BBISY_8_Y2 , BBADM_7_Y2,
BBUSS_7_Y1, BMRKT_8_Y1, BBUSA_6_Y1, BMNGT_7_Y2, BBUSE_6_Y1.
External Examiner:
Mr.Finian O’Driscoll
Internal Examiner:
Ms A.Conway, Dr.J.Hobbs, Ms.S.Huskisson
Student Name:
Lecturer:
Student Number:
Class Group:
Instructions – Please read carefully
Duration 2 Hours
Sections
A
B
C
Numbers of Questions to be
attempted
20
3
1
Percentage of Total Marks
Allotted to each Section
20
60
20
Section A:
The answers for section A must be entered into the MCQ Answer Sheet handed out with this examination
paper. Please ensure your name, student number, lecturers name and class group are written clearly on
this sheet, and submit it in the centre of your answer booklet. Any solutions provided on the
examination paper WILL NOT be corrected. There is no negative marking for incorrect answers.
Section B:
The answer to each question in this section must be answered in the answer booklet provided.
Section C:
This question must be answered in the answer booklet provided.
Non-compliance with the above instructions will result in a loss of marks.
Please ensure you hand up your Answer Booklet + MCQ Answer
Sheet.
INVIGILATORS Note: Please circulate a copy of “MCQ Answer Sheet ECON:6003 Winter 2012” to all students along with
the examination paper.
Section A
A1.
Which of the following is not a factor of production?
(a)
(b)
(c)
(d)
A2.
Scarcity exists in society because there are:
(a)
(b)
(c)
(d)
A3.
At parity.
Below parity.
Above parity.
Undefined.
A firm increases output from 2 to 4 units per week. As it does its total costs rise from €1200 to €1500,
while its fixed costs remain constant at €800. The firms MC is:
(a)
(b)
(c)
(d)
A7.
The market mechanism.
Opportunity cost.
Co-operation.
Factor substitution.
The exchange rate of the Euro in terms of the US Dollar is currently:
(a)
(b)
(c)
(d)
A6.
The good is a normal good.
The demand will increase by 7% when income increases by 10%.
The demand falls by 0.7% when income declines by 1%.
All of the above.
When a Government chooses to use resources to build a prison, those resources are no longer available
to build a motorway. This illustrates the concept of:
(a)
(b)
(c)
(d)
A5.
Insufficient levels of government involvement in reallocating income.
A large number of self interested people.
Limited wants relative to abundant resources.
Unlimited wants in the face of limited global resources.
If the income elasticity of demand (YED) is 0.7 for good A then:
(a)
(b)
(c)
(d)
A4.
Labour.
Savings.
Land.
Capital.
€100.
€150.
€300.
Zero.
If the prices of substitutes for apples should rise and nothing else changes, then:
(a)
(b)
(c)
(d)
The demand for apples will tend to increase.
The supply of apples will almost certainly increase.
The demand for apples will probably fall.
The demand for, and supply of, apples will fall.
A8.
Chocolate prices are determined by the inter-action of supply and demand. Any significant decrease in
input costs (costs of production) for this type of product will, all other things remaining the same:
(a)
(b)
(c)
(d)
A9.
If the Euro is valued at $1.21 then the Euro price of a good costing $22.5 is:
(a)
(b)
(c)
(d)
A10.
Equilibrium price will decrease and the equilibrium quantity will increase.
Equilibrium price will increase and the equilibrium quantity will decrease.
Both equilibrium price and equilibrium quantity will increase.
None of the above will happen because supply has not increased also.
The Ceteris Paribus (all other things being the same) assumption means that:
(a)
(b)
(c)
(d)
A14.
Produces beef more efficiently (using less resources) than other countries.
Produces beef at a lower opportunity cost than other countries.
Produces beef more efficiently (using more resources) than other countries.
Produces beef at a higher opportunity cost than other countries.
If there is an increase in demand and nothing else changes then:
(a)
(b)
(c)
(d)
A13.
The supply of apples will increase.
The demand for apples increases leading to a higher equilibrium price and quantity.
The supply of apples decreases leading to a lower equilibrium price and quantity.
The supply of apples will not be affected.
If a country has a comparative advantage in producing beef this means the country:
(a)
(b)
(c)
(d)
A12.
€27.23.
€23.57.
€18.60.
€21.43.
If people, for reasons of health, become more inclined to eat apples and nothing else changes then:
(a)
(b)
(c)
(d)
A11.
Shift the supply curve to the right.
Decrease the equilibrium price.
Shift the demand curve for chocolate to the left.
Cause both (a) and (b) above.
All other variables (factors) are assumed to be constant or unchanged.
There is equilibrium in the market.
No assumptions are used in the model.
None of the above.
Two goods are described as being complementary products if:
(a)
(b)
(c)
(d)
They are used instead of each other.
They are products that people have to use.
They are usually used together.
None of the above.
A15.
Economists define inferior products as:
(a)
(b)
(c)
(d)
A16.
A nuclear disaster in an economy would cause
(a)
(b)
(c)
(d)
A17.
Giffen goods.
Complements to each other.
Substitutes for each other.
Luxury goods.
A simultaneous increase in supply and demand, ceteris paribus, will cause:
(a)
(b)
(c)
(d)
A20.
Increase price.
Aggressively cut price to attract more customers.
Leave the price unchanged as it is impossible to affect total revenue.
None of the above.
If the XPED between two goods is –3.2, this means that the two goods are:
(a)
(b)
(c)
(d)
A19.
An economy’s PPF to shift outwards away from the origin.
A move along the PPF from left to right.
The PPF to shift inwards towards the origin.
A move along the PPF from right to left.
A company knows that its product is demanded in-elastically. To maximise revenue it should;
(a)
(b)
(c)
(d)
A18.
Goods that are defective.
Goods with a positive income effect.
Goods with a negative income effect.
Goods for which PED is greater than one.
Both price and quantity to increase.
Price to decrease and quantity to increase.
Price to decrease, with effect on quantity uncertain.
Quantity to increase with the effect on price uncertain.
Governments have on occasion introduced price floors in certain industries. A price floor is
(a)
(b)
(c)
(d)
Beneficial for consumers, keeping prices below equilibrium price.
Beneficial for suppliers (producers) keeping price above equilibrium price.
The next best solution when the market cannot reach equilibrium.
Beneficial for everyone in the economy.
Section B
B1.
The equations below describe the supply and demand conditions for product A.
Qs = 3P + 20
Price
Supply Qs
Demand Qd
€0.00
€20.00
€40.00
Qd = 360 – 2P
€60.00
€80.00 €100.00 €120.00
(a)
Complete the above table.
(2 marks)
(b)
Sketch the supply and demand curves. Please use the graph paper in your answer booklet.
(4 marks)
(c)
Identify the equilibrium price and quantity on your graph. Support your answer with a
mathematical approach.
(4 marks)
(d)
What would be the market outcome if the price were €40 initially?
(4 marks)
(e)
If a tax of €5 per unit is imposed on suppliers, how will this affect the answer you have given in
(c) above?
(6 marks)
(20 marks)
B2.
(a)
Define Price Elasticity of Demand (PED) and outline its formula.
(4 marks)
(b)
Describe three determinants of Price Elasticity of Demand.
(6 marks)
(c)
Using the numbers below, relating to Henry Ford’s Model-T, calculate the Own Price Elasticity
of Demand (PED) for Ford cars correct to two decimal places:
(i) For the period 1909 - 1914.
(ii) For the period 1914 - 1916.
Year
1909
1914
1916
Price
$1,000
$860
$600
Quantity sold
55,250
172,000
383,010
Total Revenue
$55.25M
$147.92M
$229.8M
(10 marks)
(20 marks)
B3.
A sophisticated 9 year old would like to ensure she maximises the utility of the Christmas presents that
she receives. Her parents have told her that the most they will be spending on her presents is €44.
She would like to get Barbie dolls, Pokemon and Jigsaws. The cost of each toy is: Barbie dolls €8,
Pokemon €4 and Jigsaws €2. The table below shows the amount of marginal utility she derives from
each toy.
Q
0
1
2
3
4
5
6
7
Barbie Dolls
TU
MU
MU/p Q
0
0
72
1
48
2
40
3
36
4
32
5
20
6
12
7
Pokemons
TU
MU
0
60
44
32
24
20
8
4
MU/p Q
0
1
2
3
4
5
6
7
Jigsaws
TU
MU
0
64
56
40
28
16
12
8
MU/p
(a)
Complete the above table.
(9 marks)
(b)
What combination of toys will give the most utility assuming all €44 is spent.
(4 marks)
(c)
What is her total utility from this combination of goods?
(2 marks)
(d)
Use an example to show why an alternative combination also costing €44 would not yield more
utility.
(3 marks)
(e)
What economic principle did you use in part (b) to arrive at the utility maximising combination?
(2 marks)
(20 marks)
(a)
Complete the cost, revenue and profit table below for a firm employing fixed amount of capital
at €500 per week and employing labour at a cost of €200 per person employed per week.
Additionally, please state the profit maximising output for both prices (€20 & €25).
(14 marks)
B4.
Lab
Q
FC
VC
TC
MC
AVC
ATC
TR (p €20)
MR
Profit
TR (p €25)
MR
Profit
0
0
2
25
4
45
6
70
8
120
10
156
12
174
14
188
16
196
(b) At what price, at minimum, would it be profitable for the firm to increase its output to (and why?):
(i)
188. (3 marks)
(ii)
196. (3 marks)
(20 marks)
Section C
C1.
(a)
Explain and illustrate with the aid of an example a Price Ceiling.
(8 marks)
(b)
Why might the government impose a price floor on a particular commodity? Illustrate using the
appropriate diagram the impact of a price floor on price, quantity supplied and quantity demanded in
the market? Is regulating the market in this way a good idea?
(12 marks)
(20 marks)
C2.
Discuss any FOUR of the following:
(a)
Floating Exchange rate.
(5 marks)
(b)
Institutional School of Thought.
(5 marks)
(c)
Income Elasticity of Demand.
(5 marks)
(d)
Law of Diminishing Marginal Utility.
(5 marks)
(e)
Opportunity Cost.
(5 marks)
(f)
Incentives.
(5 marks)
(20 marks)
C3.
For each of the following factors, state and illustrate how they will affect overall Demand or Supply
(stating how you would expect the Demand or Supply curve to shift, and the effect on the equilibrium
price and quantity).
(a)
(b)
(c)
(d)
(e)
A rise in average consumer income.
An improvement in technology for all industries.
An increase in the price of all raw materials.
A fall in the price of a substitute good.
An increase in the number of people emigrating from the country.
(4 marks)
(4 marks)
(4 marks)
(4 marks)
(4 marks)
(20 marks)
C4.
(a)
Differentiate between Comparative and Absolute Advantage.
(8 marks)
(b)
Explain Comparative Advantage, using a numerical example.
(12 marks)
(20 marks)